Germany - VAT treatment of Bitcoin

On 27 February 2018, the German Ministry of Finance has published a guidance on VAT treatment of activities related to virtual currencies. Reference is made to the ECJ decision in Hedquist (C-264/14, dated 22 October 2015). However, the MoF has used the opportunity to express its opinion with regard to other relevant aspects.

Virtual currencies to be treated as legal tender

According to Art. 135 para 1 lit. e of the VAT Directive, transactions concerning currencies used as legal tender are exempt from VAT. Even though Bitcoin and other virtual currencies (such as Ripple, Etherum, IOTA etc.) are not legal tender, the exemption rule is applied accordingly, as set out by the ECJ. Thus, conversion of virtual currencies into legal tender and vice versa does not trigger VAT. Furthermore, if a virtual currency is used to pay for goods and services (as consideration) this in itself does not trigger VAT (of course, the supply of goods and services in return is subject to general VAT rules). If a business accepts virtual currencies as a means of payment, the VAT has to be calculated on the basis of actual FX rates as published by trading platforms.

Ingame currencies (which can be used as means of payment in computer / mobile games) are not affected since they are not regarded as quasi-legal tender.

“Mining“ is not a VAT business activity

Miners receive Bitcoins as well as transaction fees for providing processing power which is required to validate Bitcoin transactions. The MoF takes the position that this is an activity outside the scope of VAT because here is no supply for consideration. Their argument: The transaction fee is paid voluntarily by other users whereas the new Bitcoins are granted “by the system” which is not an identifiable recipient of services. It is unlikely that this is the end of the story since firstly the remuneration scheme is well defined “by the system” (a miner exactly knows what he will have earned when a new block in the chain is created, there is nothing about voluntariness) whereas secondly the recipient of the service is always the person initiating a Bitcoin transaction even though the payment may come from a third “party”. The fact that the person receiving the service is not personally known should not matter.
Anyway, as a consequence, miners are not able to recover input VAT (i.e. purchase of electricity and IT equipment). The matter could be of only little relevance, since there are no professional miners supposed to operate out of Germany (due to high costs for energy).

Supply of wallets are electronically supplied services

The MoF clarifies that payments received for the supply of wallets (which are used to store virtual currencies) are subject to VAT in the member state where the recipient of the service is (default place of supply rule for B2B services, specific place of supply rule for B2C E-services subject to MOSS).

Trading platforms

The operator of a trading platform which enables third parties to trade virtual currencies does not benefit from VAT exemption according to Art. 135 EC VAT Directive (negotiation / intermediation services). Instead, the MoF takes the view that this is a mere technical service. There are rumours in the internet that this position is specifically addressed to one of the big players in the market (Bitcoin Deutschland AG, operating the platform, which has already announced to take the matter up to the ECJ. Indeed, the position of the MoF looks strange, taking into account that it is widely accepted that intermediation services (such as in insurance and finance) can be well provided via the internet.

It can be summarized that the EU (EEC) VAT system – which is 50 years old this year – has many problems to properly deal with internet related business activities. It would be a shame if restrictive tax rules are misused to seriously harm the further development in this sector. Instead the legislator should be open minded and help our good old VAT to cope with the fast developing digital world.

The above information was kindly provided by nesemann & Grambeck Umsatzsteuerberatung, Germany. If you need any further information you can contact Dr. Hans-Martin Grambeck, email to:

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Disclaimer:  The information contained in the present page is general and does not constitute legal advice. Before taking any decision or action on the above information you should take the appropriate professional advice.